Corporate Investment Linked to Financing Constraints, Not Measurement Errors
The study looked at how companies decide to invest in projects based on their available cash. They wanted to see if this decision is influenced by how easy or hard it is for the company to get financing. By analyzing data and using a simple model, they found that companies facing difficulties in getting financing tend to rely more on their internal cash to fund investments. This shows that financial constraints play a significant role in how companies make investment decisions.